Car fringe benefit reforms introduced into Parliament
Further to the reform announced in the Federal Budget, the
Government has introduced into the Parliament on 2 June 2011 Tax
Laws Amendment (2011 Measures No. 5) Bill 2011 (the Bill) which
details changes to the statutory formula method in calculating the
taxable value of car fringe benefits provided as well as associated
The proposed legislation seeks to replace the current tiered
statutory rates with a flat rate of 20% applicable regardless of
the distance travelled from 1 April 2014.
The operating cost method remains unchanged and is available as
an alternative option for employers.
Broadly, the currently tiered statutory rates would still apply
to an existing arrangement provided a financially binding
commitment has been agreed to prior to 7:30pm 10 May 2011 in
relation to a particular car. The car benefit does not need
to have been delivered by 10 May 2011.
The Explanatory Memorandum (EM) to the Bill also provided a
range of scenarios under which the transitional rules will apply to
arrangements entered after 7:30pm 10 May 2011. They
Any changes made to existing arrangements after 7:30pm 10 May
2011 will be considered new commitments and subject to the new
Extension of an existing arrangement would also be considered a
new contract and subject to the new rules.
Where an employer is taken over by another company, existing
arrangements previously held by the employer would also be caught
by the new rules from that date.
However, the transitional statutory rates would not apply to any
of the above changes until the beginning of the next fringe
benefits tax (FBT) year.
The Bill also contains a provision allowing employers to elect
to apply the flat statutory rate of 20% directly but this is only
subject to the affected employees not being worse off financially
as a result of that election and giving their consent.
The EM also cautioned against employers and employees who have
sought to end existing contracts early and who immediately entered
into new contracts to get the benefit of the new arrangements will
be subject to the general anti-avoidance provisions.
Whilst the proposed legislation has provided some clarifications
on the initial uncertainties surrounding changes to existing car
fringe benefits arrangements, it does not alleviate employers from
additional administrative burden in trying to correctly navigate
through the myriad of new rules over the next three FBT years.
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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